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Sen. Warren Calls for SEC Inquiry on Firms' DOL Fiduciary Double Talk

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Sen. Elizabeth Warren asked Securities and Exchange Commission Chairwoman Mary Jo White in a Thursday letter to investigate whether financial services companies violated securities laws by making contradictory statements to investors about the Department of Labor’s forthcoming rule to amend the definition of fiduciary for retirement advice.

Warren, D-Mass., told White in her letter that four firms — Jackson National Life Insurance Co., Lincoln National, Prudential Financial and Transamerica Corp. — have misled investors with contradictory statements about the impact of DOL’s fiduciary rulemaking.

DOL’s rule is expected to be released by the Office of Management and Budget as early as Monday.

Warren asked White to apprise her staff on whetherthe SEC would conduct an investigation and to brief them on how the regulator interprets the securities laws with regard to companies’ public statements about pending or possible rules or legislation, including official comments to government agencies and editorial and press statements. She asked for a response by April 11.

 “Corporate interests have become accustomed to saying whatever they want about Washington policy debates, with little accountability when their predictions prove to be inaccurate,” Warren wrote in her letter to White. “But the information we have obtained raises questions about how, in this specific case, the companies could have knowingly provided such dramatically different public statements about the impact of the DOL Conflict of Interest Rule – in one example, saying almost simultaneously that the rule would be ‘unworkable’ and that the rule would not be ‘a significant hurdle’ – without misleading investors.”

Warren told White that the companies may have violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and SEC Rule 10b-5, which, “broadly speaking,” prohibit companies from misleading investors about facts that could affect their business and their stock price.

Warren along with Rep. Elijah Cummings, D-Md., ranking member of the House Committee on Oversight and Government Reform, sent a similar letter in early February to OMB Director Shaun Donovan and Labor Secretary Thomas Perez, citing the double talk.

The SEC, Warren told White, has enforced Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 provisions for “decades – including in instances in which company officials made misleading statements on investor calls.”

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One example is when in April 2014, the SEC entered into a $20 million settlement with CVS Caremark Corp. based in part on allegations that CVS had “misled investors on an earnings call.”

Similarly, in 2010, after the financial crisis, the SEC entered into a $75 million settlement with Citigroup and two of its executives based in part on allegations that bank officials provided misleading information in investor phone calls about the bank’s subprime mortgage exposure, Warren told White.

“Federal courts have also allowed investor claims to proceed under Rule 10b-5 based in part on allegations that companies made misleading statements in comment letters,” she added. The U.S. District Court for the Southern District of New York, for instance, recently permitted investor claims to go forward after the plaintiff alleged that a company official had made misleading statements in a comment letter filed with the Financial Industry Regulatory Authority, Warren said.

The SEC, Warren wrote, “need not show that investors relied on these untrue statements to prove a violation of the law; still it is clear to us that both the investor phone calls held by the companies and the companies’ comments to DOL – as well as other public comments about the rule – are read by and acted on by investors.”

Warren told White that “at least one industry insider” has informed her staff that investors are “closely scrutinizing both sets of statements – the comments to DOL and the investor phone calls – in an attempt to assess the rule’s true impact on companies that offer retirement investment advice.”

Wrote Warren: “But both sets of industry claims – that the proposed rule will harm them and their business model, and that the proposed rule will not harm them and their business model – cannot possibly be true. And if one these public statements is materially false, it would appear to violate long-standing interpretations of our securities laws.”

— Check out Dalbar’s Harvey: DOL Fiduciary Rule’s Cost to Brokers’ Businesses on ThinkAdvisor.